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June 19, 2011

IBM has left its mark on century

ENDICOTT, N.Y. - Google, Apple and Facebook get all the attention. But the forgettable everyday tasks of technology - saving a file on your laptop, swiping your ATM card to get 40 bucks, scanning a gallon of milk at the checkout line - that's all IBM.

International Business Machines Corp. turns 100 today without much fanfare. But its much younger competitors owe a lot to Big Blue.

After all, where would Groupon be without the supermarket bar code? Or Google without the mainframe computer?

"They were kind of like a cornerstone of that whole enterprise that has become the heart of the computer industry in the U.S.," says Bob Djurdjevic, a former IBM employee and president of Annex Research.

IBM dates to June 16, 1911, when three companies that made scales, punch clocks for work and other machines merged to form the Computing Tabulating Recording Co. The modern-day name followed in 1924.

By the 1930s, IBM's cards were keeping track of 26 million Americans for the newly launched Social Security program.

These old, sprawling machines might seem quaint in the iPod era, but they had design elements similar to modern computers. They had areas for data storage, math processing and output, says David A. Mindell, professor of the history of technology at the Massachusetts Institute of Technology.

Its machines were used to calculate everything from banking transactions to space shots. As the company swelled after World War II, IBM threw its considerable resources at research to maintain its dominance in the market for mainframes, the hulking computers that power whole offices.

By the late '60s, IBM was consistently the only high-tech company in the Fortune 500's top 10.

It introduced the magnetic hard drive in 1956 and the floppy disk in 1971. In the 1960s, IBM developed the first bar code, paving the way for automated supermarket checkouts.

IBM introduced a high-speed processing system that allowed ATM transactions. It also created magnetic-strip technology for credit cards.

For much of the 20th century, IBM was the model of a dominant, paternalistic corporation. It was among the first to give workers paid holidays and life insurance.

IBM's fortunes began to change as bureaucracy stifled innovation. By the 1980s, Big Blue found itself adrift in a changing technological environment.

IBM had slipped with the rise of cheap microprocessors and rapid changes in the industry. In an infamous blunder, IBM introduced its influential personal computer in 1981, but it passed on buying the rights to the software that ran it - made by a startup called Microsoft.

IBM didn't own the intellectual property inside its own machines.

With its legacy and very survival at stake, the company was forced to embark on a wrenching restructuring.

Viewed as too bureaucratic to compete in fast-changing times, IBM tapped an outsider as CEO in 1993 to help with a turnaround.

Louis Gerstner, a former executive with American Express and RJR Nabisco, had little knowledge of technology or IBM culture. But he broke up fiefdoms, slashed prices and cut jobs. IBM, which had peaked at 406,000 employees in 1985, shed more than 150,000 in the 1990s as the company lost nearly $16 billion over five years.

Gerstner focused on services, such as data storage and technical support. The shift allowed IBM to ride out two recessions.

With around $100 million in annual revenue today, IBM is ranked 18th in the Fortune 500.

Some things haven't changed. The company still spends heavily on research, about $6 billion a year. It still comes up with flashy feats of computing prowess, most recently when its Watson computer system handily defeated the world's best "Jeopardy!" players. Just as in 1911, it's still in the business of finding data solutions.

While IBM's Watson attracted buzz by beating two human "Jeopardy!" champions, the company wants to put it to real-world use as a medical-diagnostic tool that can understand plain language and analyze mountains of information.

The company sees future innovations in the analysis of the billions of bits of data being transmitted in the 21st century.

"The scale of that enables you to do discovery, whether it's in the case of drugs, medicine, crime - you name it," says Bernard Meyerson, IBM's vice president for innovation.